Gary

A company consists of two pairs of husband and wife for a total of 4 employees and 4 participants. Is it reasonable or allowed to value the plan using one set of assumptions (i.e. investment return assumption, sal scale assumption) for one couple (i.e. 2 participants) and another set of assumptions for the other two participants? And report the assumptions in the Schedule B as a weighted average, much like the way a weighted average is used for assumed retirement age? Of course another approach is to have the employer sponsor two separate plans, which is only a technical difference and not of any practical difference. Curious to hear other views. Thanks

I don't necessarily know any reason why NRA of 50 is a problem, but it does seem evident that the eligible rollover aspect need be addressed. Thank you. Gary

Say a plan has a normal ret date of age 50 and the plan allows for in-service distributions after normal ret. One participant plan. Say the PVAB at age 50 is $500,000. Is there any reason why the plan cannot allow for the participant to withdraw say $50,000 one year, then say another $25,000 in three years, etc. as long as the participant does not exceed 415 and meets RMD? All the distributions will be rolled into an IRA. Otherwise, I believe there would be 10% penalty for early distribution, since this is not a periodic annuity type of pension. Thanks. Gary

A guy is over 70 and is still actively employed and receiving his RMD since he is a 5% owner. His plan was frozen and at the time his AB was 100k, but the 415 $ limit limited his pension to 60k (due to short length of plan participation), the 415 comp limit is 100k too. He is receivning an annual RMD. When computing his pension does it seem reasonable to compute a gross benefit based on the 415 $ limit, increased for COLA and significantly increased for increasing age, thus allowing his gross benefit to approach the 100k AB. The gross benefit is then offset by the accumulated value of the prior year distribution. In other words a couple of things are being addressed: 1) can a pension that has already commenced be increased if the 415 $ limit increses due to COLA? 2) can the 415 limit also be adjusted for age over 65 if the person has commened his RMD? If he commenced recieving his total AB then such a 415 limit adjustment would not be allowed, but in this case he is only receiving the RMD. Thanks.

It seems the 1/1/06 date s/b NRD and NRA n this case. Where, upon plan participation, the employee has accrued one year of benefit accrual at 1/1/06 and if a suspension of notice is not provided by 1/1/06 (or whatever the exact timing rules say) then retirement after 1/1/06 will require the comparison between act increase and actual accd ben. Of course, since this participant has very little past service, thus no leverage in his AB at NRD, the actual AB should be larger for this participant for the first few years.

Thank you for the responses. However, I am not quite seeing how vebaguru's response answers the question I posed in my prior post. Perhaps, it would be helpful if you read my prior post based on an assumption that I am referring to a one-life life insurance (with cash-value build up) welfare benefit plan for a single employer where I believe that the employer deduction for expense is the qualified cost, which is subject to 419(e). And in determining the value of the death benefit being provided, which is computed as an actuarial level premium for the death benefit only, thus not the same as the actual life insurance premium, do I want to base the actuarial level premium calculation on the death benefit under the 1) assumed illustration, 2) the guaranteed illustration, the 3) the death benefit at the time the policy commences, or 4) another amount? Thanks.

Referring to vebaguru's response: My understanding is that the amount deductible as a employer business expense is the "qualified cost" under 419(e) and that cost is the portion of the premium that provides for the death benefit coverage, thus the remaining portion of the premium is not deductible as a business expense, but is actually compensation to the employee, and essentially provides for cash value build up in the case of a cash value policy. And the qualified cost is determined to be the level premium to provide for the death benefit coverage. With that said, my question focussed around what should be considered the death benefit? Should it be based on 1) the death benefit when the policy is purchased, 2) the death benefit provided based on the guaranteed rates or 3) the death benefit provided based on the assumed rates in the illustration, where the present value of the level premium Pa (premium times life annuity factor) is equal to the present value of the death benefit, computed as a summation of the present value of the death benefit in each year (thus it can be based on the death benefit provided for each individual year, whether it stays the same or changes). Thanks.

For plans subject to 419(e) deduction limits, it is understood that the deduction is limited to the "qualified cost", where such cost is computed as the level premium for the death benefit coverage of a life insurance policy. The question is when determining the qualified cost, is it necessary to compute the death benefit based on the guaranteed policy rates or the assumed policy rates? With the assumed rates the death benefit is higher or the coverage extends to an older age, due to the greater return on the investment. The guaranteed v. assumed rates are shown in the policy illustrations. Thanks.

For plans subject to 419(e) deduction limits, it is understood that the deduction is limited to the "qualified cost", where such cost is computed as the level premium for the death benefit coverage of a life insurance policy. The question is when determining the qualified cost, is it necessary to compute the death benefit based on the guaranteed policy rates or the assumed policy rates? With the assumed rates the death benefit is higher or the coverage extends to an older age, due to the greater return on the investment. The guaranteed v. assumed rates are shown in the policy illustrations. Thanks.

Yes, my understanding is that you compute the lump sum based on the plan provisions, then convert the lump sum to an annuity using the 415 assumptions and determine if the resulting annuity is not greater than the 415 maximum benefit.

Going through the trust department is probably a good idea. FOr eg. with Schwab it is best to go through the retirement department otherwise you get the frontline financial advisors, who are often clueless.

Typically I ignore the 1099 statements as irrelevant, but do you mean or suggest that sa an additional step to advise the bank that it is a deferred compensation (i.e. pension account) so they handle it most accurately? Thanks.

The following question is so elementary, that it can get overlooked. Say a client establishes a pension plan. When setting up the pension account, clients run into difficulty, and financial institutions don't know how to handle the question "can you open a pension account for me?" They respond with all sorts of forms (irrelevant or inapplicable) or that they can't do it, etc. Many banks, etc. think that they are being asked if they can provide the plan documents, administrative tools, etc. and thus get confused or say they don't do it. My belief (and what I did for myself) is that all you need to do is establish an account called say The ABC Company, Inc. DBPP, give them the trust ID #, and Corp EIN if necessary and deposit and invest money. When I told this to a very newvous client, he kept asking is that it are you a hundred %, and so on. So my question is "Is this absolutely all that is needed to communicate to a client or should anything else be addressed?" Thanks.

I would like a plan to provide that upon the death of a participant, the spouse (or elected beneficiary) could decide at the time of benefit distribution, what form to receive the pension (the death benefit is at least equal to the QPSA and fully subsidized). For eg. the plan allows for a lump sum payment as an alternate option. So if a participant were to decease while actively employed and the spouse were the benny, the plan would of course allow the benny to commence pension at time participant would have been elig for early ret (as QPSA), but could the plan allow the benny to choose an option after death (at the time of ben commence), eg. receive an equiv. lump sum at any date after death? So since the plan provides a death ben equal to full PVAB, could it be paid as lump sum at any date after death. Bottom line is that these provisions are more liberal than statutory requirements. Thanks.

Regarding the mortality table: You suggest the CSO 2001 table and it has rates for non smoker, smoker and composite rates. In choosing the most appropriate I have a situation that has one policy using preferred non smoker rates and theother using standard non smoker rates. With that said and based on the mortality tables stated above, it would seem that a preferred table could use the CSO 2001 non smoker and a standard non smoker could use the CSO 2001 composite, since the composite has higher q's than the non smoker. Any opinions on that determination? Any other views or interpretations? Thanks.

The client said that the IRS informed her that the extension was denied for bieng sent too late.

I posted it here as at first I saw this as a pension deduction issue, not necessarily relevant that it was related to a PS plan. However, the 30-day limit does put a new light on this analysis. Is there a cite regarding the 30-day limit stated? Based on pax's reply, since this is a non deducted contribution it would not be subject to an excise tax, but based on the 30-day limit it could not even be credited for 2004 (which was the client's intent) The client's problem occurred when she did not file for the extension properly. Thanks.

A sole prop (she is only employee) had earned income of $100,000 after 50% reduction for SS taxes. Therefore, the client could have contributed up to $20,000 (25% of 80,000) to her PS plan. The tax return due date was 4/15 and the contribution was not made by that time. Clearly the person cannot receive a deduction for 2004, but if the client makes the contribution for 2004 now (7/22/05) does the client also get hit with the 10% non deductible contribution excise tax? Point being is that it is not above the 20,000 limit, just late. Thanks.

Individual aggregate.

Regarding a credit balance. At one time I believed that for the 412 calculation, plan assets s/b reduced by the credit balance. However, based on the Sch B instructions and perhaps some other experiences, my understanding hsa been that plan assets are not adjusted for a credit balance for 412 purposes. Of course after the minimum calculation is completed the credit balance then serves as a reducing credit to the minimum funding. So my current understanding is that the assets are not adjusted for the credit balance for both 412 and 404. But I do believe that assets are reduced for 404 if there is a carryover.

If there are no carryovers and the valuation assets are the market value wouldn't they be the same for 404 and 412? And for 404, one of the overrides is the 412 amount as a minimum for maximum purposes. And my question addresses how the 412 should apply (with or without credit balance).

Contributions in excess of the deductible limit, but less than the ERISA FFL are not considered nondeductible contributions and are exempt from the 10% excise tax (IRC 4972©(7)). Back to the original problem. Say the 404 limit is 200k and they contribute 400k (which is below the ERISA FFL). Then in the second year the plan sponsor creates a corp and the plan is amended to have the corp be the plan sponsor. For the second year the corp has 150k of net income and uses 120 for comp. The deductible limit is say 150k and minimum is 0. The company contributes the remaining 30k of corp income, which is deductible. Can the company deduct an additional 120k (i.e. up to the limit) from the prior year's 200k excess and create a corp loss for year of 150k, thus leaving a C/O of 50k? Thanks.

We know that one of the 404 limits is the 412 minimum. The question is: 1. Should the minimum funding under 412 as it applies to 404, include the credit balance or ignore the credit balance? So for eg. Say the minimum is 100,000 before application of the credit balance and the credit balance is 20,000, resulting in a minimum of 80,000. Assume that there have been no carryovers to date. For purposes of 404 is the minimum max tax (i.e. the 412 override) equal to 100,000 or 80,000? Thanks.

Say a self employed has earned income of $600,000 (net of 50% SS taxes) carried over to the 1040. The person implemented a DB plan for that year as well. My understanding is that the $600,000 is divided between income for pension purposes and the pension contribution (deduction). Say 1st year val results are: pension compensation of $200,000 max deductible contribution of $200,000 ERISA FFL of 800,000. The individual decides to contribute 400k to pension where 200k is deductible. Then my understanding is that 400k is taxable compensation. Now for the 2nd year val results are as follows: hypothetical scenario 1: self-employed earned income is $150,000 say they choose 120,000 as pension comepensation and contribute 30,000, in cash where the minimum was 0 due to large CB and the max tax was say 160,000. Clearly the 30k is deductible. 1. Is there any way they can deduct more than 30k (using 120k as pensin comp)? i.e. deducting some of excess from prior year. 2. Or do they have to choose a lower pension comp (perhaps as low as $0) to deduct a larger amount (perhaps up to 150k) and have the available income? Of course in this situation I believe the max deduction is 150k, based on $0 comp, even if the limit were higher than 150k. Look forward to other views. Thanks.

We know that the 100% of avg. compensation is based on the high aggregate three years of compensation, and less than three years of compensation if the employee does not yet have three years of compensation. What if in the first year of participation the employee earns $30,000. We are assuming the employee has 10 years of service prior to plan implementation and only compensation while a participant is being used for 415 and plan purposes. Is the 100% avg comp limit $30,000/1 or 10,000 (30,000/3) after the first year of service? And in a different eg. an employee earns the following compensation: Year 1 = 500,000 Year 2 = 50,000 Year 3 = 50,000 Assume 401(a)(17) is limited to 210,000. Is the 100% comp limit equal to $200,000 (500 + 50 + 50)/3 or is it 103,333 (210+50+50)/3. For plan benefit purposes the 3-year avg is 103,333, but in this case the plan could have a formula of 150% of avg comp and still be below the 415 limit of 100% comp. I've seen both interpretations supported. Thanks.